Debunking Businessweek’s Analysis of Customer Service

I’ve received many, many emails asling me to respond to an article in Businessweek “Proof That It Pays to Be America’s Most-Hated Companies,” The article analyzes the relationship between stock prices and customer satisfaction scores (from the American Customer Satisfaction Index). The article states that customer service is irrelevant or maybe even negatively influences business results. Here’s an excerpt:

“…there’s no statistical relationship between customer-service scores and stock-market returns. Your contempt really, truly doesn’t matter to these companies, with no influence on the bottom line. If anything, it might hurt company profits to spend money making customers happy.”

My take: It’s a bad analysis. Let me clarify this statement a bit. The actual crunching of numbers, comparing satisfaction scores versus stock prices, appears to be just fine. But good analysis is more than just getting the math right. It’s about making good decisions about the math that you choose to do in the first place and then applying good judgement in how you interpret the results. This article misses the mark on those last two points. Here’s why I say that:

  • The short-term movement of a company’s stock price is NOT a good indicator about the long-term success of a company. As matter of fact, it’s not a good indicator of much at all. Stock prices go up and down all of the time, so looking at year-to-date changes in stock price have more to do with the arbitrary time period chosen than with any particular dynamic of the company. What would the analysis look like if it started in November 2012 instead of January 2013, went 14 months instead of 11 months, etc. And what happens if Time Warner’s stock drops 10% over the next month or day?
  • The interpretation of the analysis should have been that customer satisfaction scores from the do not correlate with short-term stock prices (at least for the one period that was studied). I would agree. But to look at the results and say that customer service is not important for an organization’s success or even that it might hurt a company is just wrong. That’s more than a stretch, it’s just a bad interpretation of the data.

We’ve analyzed tens of thousands of consumers over the years and have found a really strong connection between good customer experience—which can be measured by satisfaction as well as other metrics—and loyalty (see my posts about the ROI of CX). Yes, there are some companies that can “trap” unhappy customers by doing things such as controlling regional monopolies or roping customers into long-term contracts. If your company has that type of market power, then you may not need to focus on customer experience.

For most companies, however, their customers have a choice. Loyalty is something that needs to be earned and can be extremely costly when it is squandered. Good customer experience increases that loyalty. It may not increase your company’s stock price over the next 11 months, but I’m not sure if anyone knows exactly how to do that. And, if you’re running your company to maximize stock price gains in the short-term, then I’m not going to bet on your company for the long-term.

The bottom line: Customer experience correlates to loyalty, but not short-term stock price

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I'm an experience (XM) management catalyst; helping organizations improve results by engaging the hearts and minds of their employees, customers, and partners. I enjoy researching and speaking about leading-edge XM topics. I lead the Qualtrics XM Institute, which is the world's best job. We're igniting a global community of XM Professionals who are inspired and empowered to radically improve the human experience. To achieve this goal, my team focuses on thought leadership, training, and community building. My work is driven by a set of fundamental beliefs: 1) Everything starts and ends with human beings, so you need to understand how people think, feel, and behave; 2) XM is a discipline that needs to be woven throughout an organization's entire operating fabric; and 3) Building the XM discipline requires a combination of culture, competency, and technology.

2 thoughts on “Debunking Businessweek’s Analysis of Customer Service”

  1. Couldn’t agree more about the share price. But there are counter arguments – not least that CX scores are non linear. Here’s a few points. What’s your thinking Bruce?

    It’s not linearI
    So much of the industry treats sat or other CX scores as linear i.e. higher score should correlate with better commercial results.
    Actually it isn’t so. It’s an S curve. You have to get customers into the extreme top zone to make a difference, or out of the extreme bottom zone.
    So companies can invest in service without affecting these zones and make no commercial difference.
    But companies who live in the extreme top zone win hands down ( Amazon…..)

    It’s not all about customer sat
    It’s a combination of:
    – brand promise
    – product
    – pricing
    – experience
    Most CX Professionals underweight the other factors economically and how much it varies by industry and customer segment. ( e.g. you buy a different car even though you loved the last one). Often it can be as low as 10-20% of the overall weighting commercially

    It doesn’t matter which way you measure it
    There’s a debate about using customer sat scores, NPS scores or customer effort
    The argument misses the point – it’s about what you do about what’s driving the scores, not what the score or scoring mechanism is

  2. in Businessweek’s ranking of innovation leaders in 2007 or 2008 they were asking for domain of innovativenes – product innovators, operations etc. one of them was experiential innovators (target, starbucks, singapore airlines etc.).. they also compared operating margin and revenue and stock returns for them.. and experiential innovators were better at revenue growth (a little bit), but performed worse in the other two categories… it seems that customers love them and they love them back and spend a lot of money for their beloved ones;-) thats why investors dont want to own them

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